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DAILY US OPENING NEWS - 23/08/11

 

 

·       Equities received strength on market talk of asset re-allocation from fixed-income to equities, together with better than expected manufacturing PMI data from Germany

 

·       A sharp decline was observed in the German ZEW figures, however the market-reaction remained limited

 

·       Weakness in the USD-Index provided strength to EUR/USD, GBP/USD and commodity-linked currencies

 

·       According to a PBOC adviser, China is concerned about US Treasury bonds and is worried about safety of its foreign exchange reserves

 

·       According to Fed’s Bullard, the Fed will take action if the economy weakens substantially and deflation reappears

 

·       RANsquawk EU Morning Briefing Video: http://www.youtube.com/watch?v=qB3oYfyIgmg

 

Market Re-Cap

 

European equities traded in positive territory during the session as risk-appetite gathered pace helped by better than expected Chinese and German manufacturing PMI figures, together with market talk of re-allocation from fixed-income into equities. However, Italian banks traded lower in early part of the session following market talk that they are facing funding issues, which was also attributed to weakness in Societe Generale shares. Strength in equities weighed upon bunds, however prices did receive support after a sharp decline in the ZEW release from Germany, though the move was short lived. Elsewhere, weakness in the USD-Index provided strength to EUR/USD, GBP/USD and commodity-linked currencies, whereas WTI crude futures traded higher. The appetite for risk was somewhat dented later in the session following comments from the German labour minister who said that in future Euro bailout funds should only be given against collateral.

 

Moving into the North American open, markets look ahead to economic data from the US in the form of Richmond Fed manufacturing, new home sales and API oil inventories, together with retail sales report from Canada.

In fixed income, USD 35bln 2-year Note auction is also scheduled for later in the session.

 

Asian Headlines:

 

Japan’s government decided to ask ministries to cut discretionary spending in the fiscal 2012 budget by 10% from the current level, and the government also agreed on a September 30th deadline for initial budget requests. (RTRS)

 

·       China HSBC Manufacturing PMI (Aug) M/M 49.8 vs. Prev. 49.3 (RTRS)

 

US Headlines:

 

According to Fed’s Bullard, the Fed will take action if the economy weakens substantially and deflation reappears, adding that the Fed has already implemented a very easy monetary policy and the inflation risk has increased in the US. Bullard expects stronger growth in the second half of 2011 and going into 2012. Meanwhile, US Republican presidential front-runner Mitt Romney said the Fed should not go ahead with another round of monetary stimulus because it would risk kicking up inflation. (RTRS/Nikkei) Also, Fed’s Fisher said there is enough liquidity in the US system, and private sector needs incentives to trigger growth. (Sources)

 

In other news, according to the president of Industrial and Commercial Bank of China, US debt is still irreplaceable in the global financial market in the foreseeable future owing to the USD’s dominant position in the international currency system. (Sources)

 

EU and UK Headlines:

 

·  Eurozone Manufacturing PMI (Aug A) M/M 49.7 vs. Exp. 49.5 (Prev. 50.4)

·  German Manufacturing PMI (Aug A) M/M 52.0 vs. Exp. 50.8 (Prev. 52.0)

·  French Manufacturing PMI (Aug P) M/M 49.3 vs. Exp. 49.7 (Prev. 50.5)

·  Eurozone ZEW Survey (Economic Sentiment) (Aug) M/M -40.0 vs. Prev. -7.0

·  German ZEW Survey (Economic Sentiment) (Aug) M/M -37.6 vs. Exp. -26.0 (Prev. -15.1)

·  German ZEW Survey (Current Situation) (Aug) M/M 53.5 vs. Exp. 85.0 (Prev. 90.6) (RTRS)

 

·  Spanish 3-month T-Bill auction for EUR 0.81bln, bid/cover 7.6 vs. Prev. 6.3 (yield 1.357% vs. Prev. 1.899%)

·  Spanish 6-month T-Bill auction for EUR 2.14bln, bid/cover 3.6 vs. Prev. 2.2 (yield 2.187% vs. Prev. 2.519%)

·  UK Index-Linked Gilt auction for GBP 1bln, 0.875% 2022 IL Gilt, bid/cover 2.05 vs. Prev. 2.05 (RTRS)

 

EQUITIES

 

European equities traded in positive territory during the session as risk-appetite gathered pace helped by better than expected Chinese and German manufacturing PMI figures, together with market talk of re-allocation from fixed-income into equities. However, Italian banks traded lower in early part of the session following market talk that they are facing funding issues, which was also attributed to weakness in Societe Generale shares. Elsewhere, weakness in the USD-Index helped basic materials and oil & gas sectors. Moving into the North American open, equities continue to trade higher with technology and telecommunications as the best performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

5556.23

3104.98

5155.2

2216.19

5242.47

Change (ticks)

82.45

53.62

59.90

32.80

98.45

 

FX

 

Weakness was observed in the USD-Index partly on the back of comments from Fed’s Bullard who said that the Fed will take action if the economy weakens substantially and deflation reappears. A weak USD-Index provides support to EUR/USD, GBP/USD and commodity-linked currencies. EUR received further strength following better than expected manufacturing PMI data from Germany, together with well-received T-Bill auctions from Spain. In other news, AUD was helped by comments from RBA’s deputy governor, Battelino, as well as Australian Treasurer, Swan, on their reluctance to intervene in the forex market.

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4482

1.6526

76.54

Change (pips)

0.0124

0.0073

-0.2500

 

COMMODITIES

 

WTI and Brent crude futures traded higher during the European session on the back of better than expected Manufacturing PMI data from China and Germany together with weakness in the USD-Index.

 

Oil & Gas News:

·       Libya will be able to restart some oil output soon, in a few months, although it will take as long as 18 months to reach the pre-war level, according to former Libyan oil minister Ghanem. In related news, Goldman Sachs said recent events have increased the likelihood that Libyan production could push back drawdown of OPEC spare capacity by 3 months.

·       JP Morgan lowered its Brent crude average price forecast by USD 9 a barrel to USD 115 per barrel for 2012, and expects a balanced supply and demand scenario in 2012, with pricing power concentrated in the hands of OPEC’s Gulf producers.

·       Citi lowered their 2011 WTI crude price forecasts to USD 89.69 per barrel and also lowered their 2012 forecast for WTI crude to USD 71.75 per barrel.

·       BNP Paribas said they expect WTI crude to average near USD 98 per barrel in Q4, citing slowing economic growth. The bank also cut its 2012 estimate for WTI crude by USD 10 to USD 107 per barrel.

 

Geopolitical News:

·       Iran has tested the most advanced model of domestically manufactured long-range radar system, the state-run Fars news agency reported, citing a military official.

·       Libyan rebel’s have taken control of Ageila in eastern Libya, and are headed towards oil port of Ras Lanuf according to reports from Al-Jazeera. In related news, Gaddafi and his son have escaped according to a Rebel source.

·      Gaddafi’s son Seif al-Islam who rebels said they had captured appeared with dozens of cheering supporters in Tripoli today saying the capital was “under control” of his father’s regime.

 

 

 

Commodity

WTI Nymex

OTC Spot Gold

Level

84.12

1878.83

Change (NYSEARCA:USD)

1.86

-18.77

 

LOOKING AHEAD

 

Economic Releases

 

CDT

BST

 

DATA

EXP

PREV

0730

1330

CA

Retail Sales  M/M (Jun)

0.7%

0.1%

0730

1330

CA

Retail Sales Less Autos M/M (Jun)

0.1%

0.5%

0755

1355

US

Redbook M/M (Aug 23)

 

0.6%

0755

1355

US

Redbook Y/Y (Aug 23)

 

4.7%

0900

1500

US

Richmond Fed Manufacturing Index M/M (Aug)

-5

-1

0900

1500

US

New Home Sales M/M (Jul)

310K

312K

0900

1500

US

New Home Sales M/M (Jul)

-0.6%

-1.0%

0900

1500

EU

Eurozone Consumer Confidence M/M (Aug A)

-12.4

-11.2

0930

1530

UK

DMO Gilt Size Announcement

 

 

1530

2130

US

API Crude Oil Inventories W/W (Aug 19)

 

1745K

1530

2130

US

API Gasoline Inventories W/W (Aug 19)

 

-5374K

1530

2130

US

API Distillate Inventory W/W (Aug 19)

 

-1293K

1530

2130

US

API Cushing Crude Inventory W/W (Aug 19)

 

-1388K

1745

2345

NZ

Trade Balance M/M (Jul)

-100M

230M

1745

2345

NZ

Exports M/M (Jul)

3.85B

3.97B

1745

2345

NZ

Imports M/M (Jul)

3.90B

3.74B

 

Speakers

0745

1345

US

Former Fed Chairman Greenspan

0900

1500

UK

BoE’s Weale

1100

1700

GE

CDU Lawmakers Discuss Eurozone Debt Crisis

1145

1745

CA

Bank of Canada deputy Governor Boivin

1600

2200

NZ

Finance Minister English

N/A

N/A

GE

Chancellor Merkel

 

Auction

1200

1800

US

USD 35bln 2y Note Auction

 

Prices taken at 1244BST